60 Minutes

60 Minutes

60 Minutes

60 Minutes

60 Minutes

Chipping Away At Realtors' Six Percent

Lesley Stahl Reports How Realtors' Commission Fees Are Under Assault

2007May 11

CorrespondentDaniel Schorn

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Editor's Note: After our broadcast we heard from Stephen Cook, a Vice President of the National Association of Realtors. In his letter he said, "All real estate commissions are negotiable and the average is 5.1 percent, according to the most recent available data." That number came from an industry trade publication, REAL Trends, and was an estimate of average commissions charged by the nation's top 500 brokerages.

A critique of that survey, written by John C. Weicher, Director of the Hudson Institute's Center for Housing and Financial Markets, found REAL Trends' commission data limited by its focus on the largest brokerages and most expensive homes; the most likely situation in which agents charge a lower than 6 percent commission fee.

And, the Government Accountability Office – Congress' investigative arm – reported in a 2005 study that commission rates continued to be about 5 percent to 7 percent of a property's selling price "regardless of local market conditions, housing prices, or the cost or effort required to sell different properties."

Finally, in Cook's letter to us, he wrote, "The National Association of Realtors is a trade association and does not "govern" the real estate industry, and, there is no such thing as a national multiple listing service." In fact, there is no national Multiple Listing Service, instead according to the Justice Department, there are about 1000 multiple listing services, 80 percent controlled by members of the National Association of Realtors and governed by its policies.

We reported in our story entitled, "6 Percent", that an Internet-based real estate company, ERealty, went "belly up." To be precise, ERealty was purchased by Prudential Real Estate Affiliates, at a loss of about $33 million to ERealty's investors, according to one of those investors, Steve DelBianco.Even with today's housing slump, real estate agents will pull in about $60 billion this year. And the reason is, as any homeowner knows, they charge a six percent commission on the price of every house they sell. So, for instance, a home that goes for a half a million dollars will net agents $30,000 right off the top.

For realtors, the six percent commission is sacrosanct. It's remained in place, even as the price of homes has quadrupled over the past 25 years.

But as correspondent Lesley Stahl reports, things are beginning to change. What happened to travel agents, stock brokers and book sellers – the encroachment of the Internet – is beginning to affect real estate agents. And the sacred six percent is under assault from online discounters.

Lehrer Willis and his fiancée Bridgette Takeuchi of Seattle, young and Internet savvy, took a big chance when they decided not to hire a traditional real estate agent. Instead, they both sold their old house and bought a new one online.

"What did you have to do yourselves that the traditional real estate agent would have done for you?" Stahl asks.

"Print out the flyers, you know, that would go on our signposts, and describe our house to potential buyers. And then we held an open house ourselves," Willis recalls.

What did they didn't get, says Takeuchi, was having a real estate agent to show the house and actively sell the property.

"Who's out there, really pushing for us?" Stahl remarks.

"And that's what I kept saying," Takeuchi acknowledges. "Those insecurities started to really seep in for me and I started to really question. It wasn't until the ink was dry on the paper that I was a hundred percent sold, to be honest."

Willis says they saved $26,000 by not going through a traditional realtor and paying a commission. "Now we can walk down the aisle. Actually, pay for people to eat at the wedding," Takeuchi adds.

They used a real estate company called Redfin, an online discounter based in Seattle. It has a cadre of e-agents who, for the most part, do their work on computers and on phones. Rob McGarty says early on a number of people called who were skeptical about the whole idea.

"Are there real people there? Is this just some shop in Bangalore! A call center taking real estate transactions? And, you know, after they talked to us [they] realize we were real agents in the same city they were in … they were like: 'Whoa, this is for real!'" McGarty explains.

Willis and Takeuchi's agent, Kelly Engel, used to be a traditional agent. "I had done quite a few deals where I spent maybe five hours total working on the deal. I never saw the house. My client found it online and, you know, I would make $12,000 for four hours of work. And I thought this cannot keep going on like this. Someone, I felt like I was going to get caught! You know, someone's going to see that this is happening and I think a lot of them hold that truth inside of them right now. They've got the clients that are finding houses on their own. They make $20,000 and did 10 hours of work," she says.

Glenn Kelman may look like a bike messenger, but he's an Internet entrepreneur, the president and CEO of Redfin. "Real estate, by far, is the most screwed up industry in America," he says. "And we feel like things that Amazon or eBay or Yahoo have done of other industries, we can do for the real estate industry."

Because of the Internet, he says, his agents can handle many more transactions and charge the clients much less. "Because they didn't have to sit in the back of a Lexus with a real estate agent, and use up all of this time, we're able to pass on a lot of savings to them," he says.

And he does mean "a lot" of savings. Usually, a seller's agent and a buyer's agent split the commission, so they each get three percent. But when Redfin represents the seller, it charges a flat fee of just $3,000, and that's it. That alone drives the traditional agents crazy. But then, when Redfin represents the buyers, they give them money back.